Factory activity hits 8-month high in Nov.

Published December 1, 2021, 11:50 AM

by Chino S. Leyco

Business conditions in the manufacturing sector continued to strengthen in November as demand expanded for the first time in eight months while output neared stability.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) rose marginally to 51.7 in November from 51 in October, registering above the 50 no-change threshold that separates expansion from contraction.

Although only modest, the latest uptick was the strongest in eight months and in line with the long-run series average.

Central to the uptick was an expansion in new orders received by Filipino manufacturers, with new sales rising for the first time since March, according to the PMI.

Higher client numbers, increased footfall, and a general improvement in customer demand were the key drivers of growth, according to panellists. The rate of growth was subdued in the context of the series history, however.

At the same time though, manufacturers recorded an eighth monthly decline in production, albeit one that was only fractional.

While stronger sales helped some businesses to expand their output, others mentioned delays receiving inputs, as well as material and staff shortages constrained capacity.

“Traffic issues, port congestions and difficulties sourcing materials influenced another deterioration in vendor performance during November. The extent to which lead times lengthened was marked, but eased during the month,” IHS Markit said.

Meanwhile, workforce numbers continued to fall, though only modestly and at the softest pace for four months. Respondents often cited that voluntary resignations led to the decline, but firms also reportedly found it difficult to source skilled replacements.

Despite this, backlogs of work fell sharply, and at a quicker pace. Anecdotal evidence suggested that firms were able to keep up with demand as employees worked overtime to complete existing orders.

With new orders expanding marginally in November, companies raised their buying activity for the second month running.

“Expectations that demand will continue to improve encouraged firms to add to their input stock levels, which they did so at the strongest rate since February,” IHS Markit said.

On the price front, input costs rose during penultimate month of the year, extending the current period of inflation to 19 months.

The rate of increase quickened to the sharpest since March 2018 and was among the steepest in almost six years of data collection.

“Panel comments often linked the surge to higher raw material, transportation and energy costs. Selling charges also rose, and at a quicker pace as firms sought to pass-through higher expenses,” IHS Markit said.

Looking ahead, firms remained confident that output will improve over the course of the year. In fact, the degree of optimism improved to a 21-month high with hopes of a return to normality and greater demand underpinning the outlook.

“That said, although sentiment was higher than the average for 2021 so far, it was below the long-run series average suggesting concerns regarding the pandemic still persist,” IHS Markit said.